* U.S. government working on plan to deal with toxic assets
* U.S. dollar up, Treasury prices fall as risk aversion
eases
* China govt efforts propel stocks in Shanghai, Hong Kong
By Kevin Plumberg
HONG KONG, Sept 19 (Reuters) - Asian stocks and the U.S.
dollar rallied on Friday as U.S. policymakers met to design a
broad plan to resolve a crisis that has threatened the global
financial system and reshaped the banking industry.
U.S. Treasury Secretary Henry Paulson and Federal Reserve
Chairman Ben Bernanke would work through the weekend on a plan
that congressional leaders said would focus on dealing with
illiquid assets -- the toxic source that has shattered balance
sheets, pushed Lehman Brothers <LEHMQ.PK> to file for
bankruptcy protection and prompted the U.S. bailout of American
International Group <AIG.N> this week.
"It's a relief, it allows for an orderly workout for the
impaired assets and it will help the banking sector get back to
business," said Hans Kunnen, head of investment markets
research at Colonial First State Fund Managers in Australia.
Government debt prices, which have served as a safe harbour
for investors throughout the 13-month-old crisis, tumbled on
news of the plan.
However, U.S. Treasuries with maturities less than a year
were stable and gold prices actually rose, reflecting how a
sense of caution remains embedded in markets ahead of the
weekend.
The Chinese government was also actively trying to
stabilise its markets, buying shares in three of the biggest
state-owned banks and ditching a tax on purchases of stocks.
The news propelled Shanghai's composite index 9.3 percent
higher <> after it had closed on Tuesday at a 22-month
low.
Hong Kong's Hang Seng index <> rose 7.1 percent, led by
a revived financial sector. Shares of Industrial and Commercial
Bank of China <1398.HK>, China's largest lender which has a
listing in Hong Kong, rocketed up 15 percent and was the
biggest gainer on the index.
Japan's Nikkei share average <> was up 2.65 percent,
after plumbing a three-year low on Thursday. Shares of the
country's top bank Mitsubishi UFJ Financial <8306.T> leapt 9.2
percent after a volatile week.
Outside of Japan, Asia-Pacific stocks were up 2.7 percent,
rebounding from a two-year low hit on Thursday, according to an
MSCI index <.MIAPJ0000PUS>. The index was down 6 percent on the
week.
In addition to the U.S. government crisis plan in the
works, efforts to thwart the crisis have been multi-pronged and
global.
Central banks in the United States, Europe, Japan and
elsewhere have injected massive amounts of liquidity into money
markets, culminating in a coordinated offer on Thursday of $180
billion in funding.
Further, the top U.S. regulatory body was working with
Britain to crack down on abusive short selling.
"These actions definitely mean some relief for the market,
at least temporarily," strategists at Calyon in Hong Kong said
in a note. "In particular, there must be some quick follow-up
on this U.S. bank recapitalisation initiative for it to
contribute to calm the market on a sustained basis."
The plan could involve setting up a fund to buy distressed
assets from the banks, something like the Resolution Trust
Corporation which was formed to buy and then sell impaired
assets during the Savings and Loan Crisis a decade ago.
The U.S. dollar rose broadly on hopes for a crisis
resolution.
The euro dropped 0.5 percent to $1.4248 <EUR=>, and the
dollar climbed 0.7 percent to 106.30 yen <JPY=> after hitting a
3-1/2-month low around 103.50 yen on Tuesday.
The 10-year U.S. Treasury note <US10YT=RR> dropped 17/32 in
price, lifting its yield to 3.62 percent from 3.53 percent.
Gold was up 0.8 percent in the spot market <XAU=> at
$853.70 an ounce after rising to a six-week high of $902.60 an
ounce on Thursday.
(Additional reporting by Victoria Thieberger in MELBOURNE)
(Editing by Neil Fullick)
